Is the Secondaries Market Undercapitalised?

The secondaries market has surged to the forefront of private equity, smashing records in fundraising and deal volume. Yet behind the headlines lies a more delicate reality: capital availability is not keeping up with the demand for secondaries.

As mega-deals multiply and institutional investors increasingly rely on secondaries for liquidity, a shortage of dry powder (committed but uninvested capital) is becoming one of the market’s defining challenges. The question is whether the secondaries industry, despite its growth, is undercapitalised relative to the scale of opportunities it faces.

The Numbers Behind the Crunch

Dry powder in secondaries stood at $216 billion at the end of 2024. By mid-2025, that number had already fallen to $171 billion, reflecting how rapidly deal activity consumed available capital. Meanwhile, dealflow is exploding. In 2024, annual deal volume hit $162 billion, the highest ever. By the first half of 2025, transactions had already exceeded $100 billion, putting the market on track to surpass $200 billion for the first time.

This imbalance has sharpened competition, with buyers fighting to deploy limited capital into increasingly large and complex deals.

Why Dry Powder is Falling

Several forces are driving the squeeze. Record dealflow is the most obvious factor. Simply put, transactions are closing faster than capital can be raised, leaving buyers “drinking from a fire hose.” Mega-deals are also playing a role. Firms like Ardian and Blackstone are now executing transactions in the $5–10 billion range, and these concentrated portfolio sales can quickly drain even the largest capital pools.

At the same time, new entrants are adding to competition, but their vehicles remain small compared with the scale of institutional portfolios trading hands. LP allocation pressure compounds the problem: pensions and sovereign wealth funds are more frequent sellers but remain constrained in committing fresh capital to secondaries dedicated funds, as many are already overallocated to private equity.

Together, these dynamics have created a market where appetite for deals far exceeds the available capital to fund them.

Fundraising Tailwinds Offer Relief

The good news is that the market is responding. Evercore projects buyers will seek to raise $218 billion over the next year. Investment banks forecast $250–300 billion of dry powder will be available within the next 12 months as mega-funds close and leverage enhances capacity.

This wave of fundraising should ease the pressure, though it will take time for committed capital to be drawn and deployed. In other words, the shortage of dry powder is already on the path to resolution, but the demand for secondaries solutions continues to run ahead of the capital dedicated to these strategies.

The Strategic Implications of a Capital Shortfall

Until fundraising fully catches up, the shortage of dry powder creates several consequences. Pricing pressure is one: with more buyers competing for fewer capital slots, pricing for LP stakes could rise. For GP-led transactions, competitive dynamics may push valuations higher, making underwriting more challenging.

Selective deployment is another. Firms are prioritising large, high-quality portfolios over smaller or niche opportunities, leaving mid-market sellers struggling to attract bids and creating a two-tiered market.

Execution bottlenecks also persist. Beyond financial capital, the market faces a shortage of human capital. There simply are not enough experienced “deal captains” to lead multiple transactions in parallel. This means the challenge is as much about people as it is about money.

Is the Market Undercapitalised?

So, is the secondaries market undercapitalised? The answer depends on perspective:

• Relative to Demand: Yes. With dealflow projected to exceed $200 billion annually, current dry powder levels (even after replenishment) will be tested.
• Relative to Growth Trajectory: No. Fundraising is accelerating, and the pipeline of mega-funds suggests capacity will rise significantly over the next year.
• Structurally: Possibly. As secondaries integrate into mainstream private markets, the demand for liquidity may permanently outpace the fundraising cycle.

Looking Ahead: Capital Expansion Across Channels

Several trends suggest the squeeze may ease over time. Retail access, through semi-liquid structures, are opening new capital channels and diversifying beyond institutional LPs. Moderate use of leverage is also expanding deal capacity, though not without risk. More entrants are joining the fray, with the 2025 SI 50 showing that 18% of the ranking consisted of new firms. Finally, cross-asset integration is broadening the definition of secondaries, as transactions extend into real estate, infrastructure, and credit, further expanding the investor pool.

Together, these shifts point toward a deeper, more diversified market that will be better equipped to meet future liquidity demands.

Managing the Fire Hose

The secondaries market is growing faster than its capital base. Dry powder has become the limiting reagent in an otherwise high-velocity system. While new fundraising will add capacity, execution discipline and selective deployment will be critical in the interim.

For LPs, the shortage underscores the importance of partnering with scale players who can guarantee execution. For buyers, it highlights the potential for outsized returns when scarcity drives discounts. And for the market as a whole, it raises the question of whether secondaries will need to permanently scale to match their new role as the liquidity backbone of private equity.

The squeeze is real but it is also a sign of strength. Demand for secondaries is rising faster than capital because the strategy has become indispensable to private markets. As fresh fundraising, retail access, and cross-asset integration expand capacity, secondaries are poised to keep pace with liquidity needs and shape the future architecture of private markets.

Research Analyst

Simran Mehla

Frequently Asked Questions

Q: Why has dry powder in the secondaries market fallen?

A: Dealflow has accelerated faster than fundraising, with mega-deals consuming capital quickly and LPs constrained in making fresh commitments.

Q: How much dry powder is expected to return to the market?

A: Evercore projects $218 billion in new fundraising over the next year, with investment banks forecasting $250–300 billion in total dry powder as mega-funds close.

Q: What are the consequences of limited dry powder?

A: Competition for deals intensifies, pricing pressure rises, and firms focus selectively on large, high-quality portfolios, leaving mid-market sellers at a disadvantage.

Q: Is the secondaries market truly undercapitalised?

A: In relative terms, yes, demand for secondaries solutions outpaces available capital. But fundraising is accelerating, and structurally the market is expanding capacity.

Q: What does this mean for the role of secondaries in private markets?

A: The imbalance highlights that secondaries are now central to private market liquidity. Their importance is growing so quickly that supply-demand mismatches may persist, but this only underlines their strategic relevance.

Sources

1. The Secondaries Investor 50: 2025.
   https://www.secondariesinvestor.com/top-secondaries-firms/
2. Jefferies H1 2025 Global Secondary Market Review
   https://www.jefferies.com/wp-content/uploads/sites/4/2025/08/Jefferies-Global-Secondary-Market-Review-July-2025.pdf?utm_term=6601147548